Merchants Face Growing Revenue Loss from Chargebacks, Report Shows

More than a quarter of companies now lose $5M a year or more to transaction disputes, according to Justt’s 2023 Chargeback Pulse report

Chargebacks are now taking a multimillion-dollar bite out of many businesses’ revenues, according to the Justt 2023 Chargeback Pulse report, which reveals that a quarter of merchants now lose $5 million a year or more to chargebacks  — even as shifts in consumer behavior are driving up the frequency of payment disputes.

The survey’s 520 respondents come from merchants with at least $50 million revenue in the United States and Canada, with more than half of them representing large organizations with more than $500 million revenue.

“Merchants have long viewed chargebacks as the cost of doing business — but the new Chargeback Pulse report shows that these costs are now spiraling out of control and eating away at their bottom line,” says Ofir Tahor, CEO and co-founder of Justt. “The rise of buy-now, pay-later services and new rules governing disputes are only adding to the challenges businesses face as they seek to clamp down on improper chargebacks.”

  • 40% of respondents report that at least 1% of their companies’ revenue is lost to chargebacks, which means $5 million for an organization with $500 million a year in sales and a whopping $10 million for a business with over $1 billion in sales
  • 53% of merchants see chargebacks volume growing compared to last year, with only 15% reporting a decrease
  • 42% of merchants now have BNPL offerings, which are particularly vulnerable to chargebacks, and another 14% plan to add BNPL over the next 12 months
  • 35% of merchants exceed a chargeback to transaction ratio of 0.9% – the threshold at which Visa places them under greater scrutiny and subject to potential fines

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The study also uncovered how chargebacks are particularly affecting the travel and hospitality (T&H) sector as well as airline businesses, as more than half of surveyed respondents in these industry cohorts represent organizations with more than $500M revenue.

  • A whopping 70% of T&H merchants lose over 1% of their revenue to chargebacks, compared to the 40% average for all businesses.
  • For T&H as well as airline business, winning chargeback dispute cases is the most challenging compared to other industry sectors
  • Almost a third of airlines (27%) do not currently have but plan to offer BNPL solutions in the next 12 months, which may result in a potential surge in chargeback volumes

Despite the escalating business risks posed by chargebacks, 42% of overall survey respondents currently lack the resources they need to tackle this problem. Worse still, 55% find it extremely challenging to distinguish “friendly fraud”, i.e. first-party misuse, from legitimate chargebacks, which means that companies could have won more chargeback cases if they had better insights into the root causes behind chargebacks. This is something that requires greater inter-departmental collaboration and technology investment.

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Lastly, the study also reveals the extent to which chargeback professionals struggle in keeping pace with changes to the chargeback ecosystem. In fact, just 33% saying they fully understand Visa’s new rules around “compelling evidence” in chargeback cases — and shockingly, 17% of respondents said they hadn’t heard of Visa’s new rules at all.

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